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· Low interest rates are critical to sustain economic growth, but inflation remains vulnerable to commodity prices and weather
· Greater investment in education and skilling are vital to avoid job losses created by mechanization and technology
· Land and labour reforms could create millions of new jobs – but states must lead the way
· For more information on the India Economic Summit, visit http://wef.ch/ies16
New Delhi, India, 6 October 2016 – This week’s cut in the repo rate to 6.25% by the Reserve Bank of India heralds a transition to a “low interest rate regime that will lay the foundation for 20 years of growth,” declared Naushad Forbes, President, Confederation of Indian Industry (CII), and Co-Chairman of Forbes Marshall, India, at the India Economic Summit, which opened today. Forbes called for market-linked pricing to fuel oil to protect public finances against any increase in commodity prices.
Challenging the RBI’s move, Vineet Nayyar, Vice-Chairman of Tech Mahindra, said that “tiny margins of a quarter per cent won’t change anything.” Nayyar complained that “interest rates have been way too high” in India and argued that the Asian Tiger economies, including South Korea and China, increased capital formation and productivity by bringing interest rates down.
“We cannot guarantee that either interest rates or inflation will continue to decline over the next five years,” said Gita Gopinath, Professor of Economics at Harvard University. Rising commodity prices feed quickly into inflation, while the weather, which the RBI cannot control, plays a “key role in inflation,” said Gopinath.
Panellists agreed on the urgent need to invest more in education, healthcare and skilling, with closer attention to measuring outcomes. Government schools – so strong a generation or two ago – have become “hugely poor,” according to Nayyar. Corrupt practices, including teachers subcontracting their lessons and cheating in exams, are swept under the carpet.
Already we see job losses in agriculture due to mechanization and the erosion of middle class jobs in accountancy, medicine and law due to technology, said Nayyar. Pawan Munjal, Chairman, Managing Director and Chief Executive Officer of Hero MotoCorp, India, agreed: “There is a huge gap in skilling,” but it is not only a government responsibility. “We have to put our own efforts and investment into skilling and some of us are doing that,” he said. Gopinath identified the textiles sector as a great source of employment and reskilling for agricultural labourers.
Investment in research and development is 10 times higher among tech companies in China than in India, pointed out Forbes. The only investment is in start-ups, while major corporations are lagging behind. “If we do not move in that direction, we see extinction,” agreed Nayyar.
Following its success with the Goods and Services Tax (GST), the government must prioritize land and labour reforms. These reforms are so politically contentious that the government is encouraging states to make the first move, said Forbes. So far, six states have made progress on labour and three have moved on land reforms. With 10 states moving on both, the government can then recognize the reforms centrally – even if it does not, investment will go into those states in any case. These reforms, combined with greater investment in skilling, could transform the mass manufacturing sector, for example, creating millions of new jobs.
Forbes remains bullish about India’s future. South Korea, Taiwan and China have grown at close to 10% for 20 years. “We need to do the same, then we will lift millions out of poverty,” he said. “The reforms of the past 25 years have led India to this point,” he added, “but the best is yet to come.”
The Co-Chairs of the summit are: Anil Agarwal, Executive Chairman, Vedanta Resources, United Kingdom: Johan C. Aurik, Global Managing Partner and Chairman of the Board, A.T. Kearney, USA; Gita Gopinath, Professor of Economics, Harvard University, USA; Amitabh Kant, Chief Executive Officer, NITI Aayog, India; John Rice, Vice-Chairman, GE, USA; and Vijay Shekhar Sharma, Chief Executive Officer, Paytm, India.
The India Economic Summit, hosted by the World Economic Forum in partnership with the Confederation of Indian Industry (CII), takes place on 6-7 October under the theme, Fostering an Inclusive India through Digital Transformation. The summit, in New Delhi, convenes more than 600 participants from over 30 countries.
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